Every year the National Association of Realtors (NAR) surveys buyers and sellers of primary residences on a variety of topics. Usually, the changes from one year to the next are fairly minor, but the most recent survey (covering the period from July 2021 through June 2022) produced some big statistical deviations from prior years. Here are some of the findings that stood out to me.
1) The percentage of first-time buyers dropped to a record low of just 27%, beating the previous record low of 30% in 1987 — 35 years ago! In the 2020-2021 survey it was 34%. The average age of first-time buyers jumped from 33 to 36. The average age of repeat buyers also rose — from 56 to 59.
2) 88% of all buyers were White, the highest percentage since the 1990s. Meanwhile, the percentage of buyers who were Black and Asian/Pacific Islander both dropped by half, from 6% to 3%. The percentage of buyers who were Hispanic/Latino rose slightly from 7% to 8%.
3) Buyers moved an average of 50 miles from where they lived before, up from 15 miles the prior year, which was as high as it had been since at least the 1980s. (See chart below.) So, where did they move? Suburbs took a big hit, plunging from 51% to 39%, while rural and small town destinations jumped by half — 12% to 19% for rural areas and 20% to 29% for small towns. The NAR survey attributes that change to the pandemic’s effect of encouraging work from home. “Zoom towns were boom towns.”
4) While only 3% of first-time buyers paid cash for their homes, 27% of repeat buyers paid cash, up from 17% the prior year. The survey attributes this to the surge in equity which homeowners had experienced in recent years, especially during the pandemic, providing them with lots of cash to spend on their replacement homes.
5) How long buyers expect to remain in the home they just purchased had held steady since 2009 at 15 years for repeat buyers and 10 years for first-time buyers. The NAR survey showed a huge jump in that expectation for first-time homebuyers — from 10 years to 18 years. The expectation of repeat buyers remained unchanged at 15 years.
6) The percentage of first-time buyers who had been renters plunged from 73% to 64%, while the number who moved from living with family or friends jumped from 21% to 27%. (See chart below.)
Click here to view the full summary of NAR’s 2022 survey of buyers and sellers.
First of all let me thank The Denver Post for making it possible for me to reach its many readers for well over a decade in this YourHub ad. I estimate that we get 90% of our real estate business from people who read this column and are inspired to contact us when they have a real estate need. Although we pay for this ad and for its placement on page 3 — the best ad location in any newspaper — they don’t need to sell it to us, and I thank them for letting me advertise here.
The feedback I get from many readers is that this is the first place they turn to when they receive this newspaper. What a great compliment that is, so my second “thanksgiving” is to you, my readers for following this column each week and thinking to call us when you have a real estate need. You can count on me to continue writing this column week after week and year after year so long as The Denver Post keeps it affordable!
By the way, should you move or stop subscribing to this newspaper, remember that I send it by email to over 1,400 subscribers (free, of course), and I would be happy to add you to that list.
Next, I am thankful to Golden Real Estate’s broker associates who continue to excel in serving our clients year-round. They share their commission earnings with the brokerage, of course, but are compensated for that in various ways, including having their listings featured in this ad and being themselves promoted at the bottom of each week’s ad. They are all excellent Realtors who share our company’s values, an example of which is that the majority of them drive Tesla cars! I am blessed that they choose to be associated with Golden Real Estate and am happy to share with them many of the leads which come to me from readers of this column.
(By the way, we welcome applications from other licensed agents, as long as they share our values and are Realtor members.)
One of the unexpected secrets to Golden Real Estate’s success has been my personal outspokenness politically, which has meant disparaging former President Trump and his MAGA allies in my Talking Turkey column. There was initially some concern that we would lose business, but the opposite has been true. Readers who have appreciated my political stand have chosen Golden Real Estate as their brokerage because of my writings. The gained business has far outweighed the lost business, which I hope inspires other Realtors and brokerages to be less shy about sharing their patriotic beliefs, whether left or right. As citizens, let’s put country before self, however that looks.
In that regard, I am especially thankful for the results of the midterm elections. And I’m guessing that next year I’ll be thankful that Donald Trump has entered the 2024 presidential race. May he do even more damage to the MAGA cause that he has already done! More importantly, however, may his candidacy contribute to the revival of the mainstream Republican Party, re-earning its designation as the “Grand Old Party.” That was the party of my father, and I miss it!
As always, I continue to be thankful for the contribution made by the National Association of Realtors (NAR) to protecting and promoting home ownership and the real estate industry. Only half of licensed real estate agents pay dues to NAR through their local Realtor association, but NAR continues to serve the entire industry as well as the general public by lobbying against negative legislation and government regulation on both the national and state level. Thank you, NAR!
I am grateful, too, to the Golden Chamber of Commerce and all metro area chambers of commerce for all they do to serve the business community, and I’m proud that Golden Real Estate pays dues to our own Chamber, regardless of the direct benefit we may gain from membership. It’s our way of giving back to the community by providing sustenance to an organization that serves the community.
We are also grateful to have made the move to downtown Golden, now occupying a storefront next to Ace Hi Tavern. Come by and say hello, perhaps during December 2nd’s candlelight walk!
I also thank Wendy Renee of Fairway Independent Mortgage Corporation for choosing to office inside Golden Real Estate’s storefront. She adds important expertise to our office and helps us to serve the many walk-ins we are welcoming in our new location.
Last but not least, Rita and I are thankful for our relationship with each other and our extended family. Happy Thanksgiving to all!
The article encourages NAR’s one million members to make their next car electric, but omits one selling point I take advantage of every April — I deduct over $10,000 for business mileage even though the cost of charging is near zero thanks to an abundance of free charging stations. Even if pay for the electricity — whether at home or at Tesla Supercharger or a DC Fast Charging station — the cost of the electricity is so much lower per mile than the cost of a gas-powered car, that the standard IRS deduction per business mile traveled becomes a nice source of tax-free income for Realtors or any other person who uses their personal car for business.
Many people, I’ve found, assume that Realtors, especially the top producers, must be conservatives who resist social policies, tax increases and liberal agenda items in general. That could include denial of human-caused climate change and opposition to any mandates that interfere with “individual freedom” such as mask or vaccine mandates.
Well, I’m pleased to report that, at the association level, we’re a pretty liberal bunch. Yes, I know a few Realtors who are hard-core Trumpers and live by the words of Tucker Carlson, but they’re in the minority.
Those Realtors would not have been pleased when the president of the National Association of Realtors apologized for NAR’s support of racist policies earlier in its 110-year history in his speech to the annual convention. Compare that to conservatives across the country wanting to ban books and classroom discussion about “critical race theory,” intended to rally the conversative base to vote out liberals on local school boards and elsewhere.
As the article explains, ESG “is a set of standards for a company or practitioner’s operations that investors (or consumers) use to screen potential investments. Environmental criteria measure how that company or practitioner perform as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance refers to policies around leadership, executive pay, audits, internal controls, and shareholder rights. In short, ESG evaluates if a company, organization, or practitioner is operating sustainably. Globally, sustainability is rated as an important purchase criterion for 60% of consumers.”
The Realtor associations go beyond ESG to add R for Resilience, which is an aspect of sustainability.
Knowing Golden Real Estate’s (and my personal) commitment to such issues, you can understand how pleased I was to read of NAR’s commitment to the same values.
The fact that the Colorado Association of Realtors (CAR) featured this NAR initiative in their monthly magazine suggests that Colorado Realtors are, through their association, fully on board with this issue.
What follows are some excerpts from the article which spoke to me:
“Sustainability is the evolution of long-term value creation for people, planet, and the economy. If sustainability is the journey, then ESG is how we measure progress,” said Ryan Frazier, CEO of Frazier Global, a Colorado-based management consulting and environmental, social, governance (ESG) advisory business.
“We must integrate a culture of sustainability throughout our association and industry. By building a resilient real estate market today, we can create healthy, vibrant, and diverse communities for generations to come,” said 2022 NAR President Leslie Rouda Smith.
“Leading by example, NAR is driving the real estate industry toward a more efficient and sustainable future,” said NAR CEO Bob Goldberg. “As part of this responsibility, we are strengthening the association’s support of sustainability efforts and increasing engagement on policies and programs that prioritize viability, resiliency, and adaptability. We are working to generate meaningful, lasting change that will benefit both current and future generations.”
Millennials now make up 43% of homebuyers, the most of any generation, according to a 2021 report from the National Association of Realtors—and that number is only predicted to rise. And this generation has a reputation for being values-driven in their approach to their money and their careers. These choices drive where they choose to work, play, and buy a home. About one-third of millennials often or exclusively use investments that take ESG factors into account, compared with 19% of Gen Z, 16% of Gen X and 2% of baby boomers, according to a Harris Poll on behalf of CNBC, which surveyed 1,000 U.S. adults ages 30 to 40 on a variety of topics. The escalating importance of ESG doesn’t just impact homebuyer sentiment. It will also matter to brokerage firms looking to hire the best and brightest agents. Companies that promote strong ESG values tend to attract and retain the best talent.
The Purple Report on ESG and Real Estate [by NAR] had 703 respondents. 51% live in Colorado and own a home or want to own a home in Colorado and 49% live outside the state but expressed an interest in buying a home in the state.
When asked, are you more likely or less likely to work with a Realtor who has a proficient level of knowledge and training on sustainability and sustainable housing practices when it comes to buying, selling, or investing in a home? 70% of respondents were somewhat or much more likely.
When asked, do you agree or disagree with the viewpoint that as the number of severe weather conditions, droughts, wildfires increase due in part to climate change, and with the potential risk to homes and commercial properties, Realtors need to be helping provide solutions that address climate change risks? 67% of respondents said they agree. The number jumped to 80% among those ages 18-24, and to 79% of those earning $150,000 a year or more.
As the National Association of Realtors Code of Ethics preamble tells us, “Under all is the land.” Our planet is the one resource we all depend on, as will our heirs. The best time to care for it — and for them — is now.
Many buyers and sellers and their agents have to deal with competing offers for new listings. The Colorado Real Estate Commission has offered no guidance on how to deal (or not deal) with multiple offer situations. Below, however, is NAR’s guidance based on the articles and Standards of Practice from the Realtor Code of Ethics. Note: The Code only applies to Realtors, and roughly half of licensed real estate brokers are not members of their local Realtor association.
“When representing a buyer, seller, landlord, tenant, or other client as an agent, Realtors® pledge themselves to protect and promote the interests of their clients. This obligation to the client’s interests is primary, but it does not relieve Realtors of their obligation to treat all parties honestly.” (from Article 1 of the 2014 Realtors Code of Ethics)
“Realtors shall submit offers and counter-offers objectively and as quickly as possible.” (Standard of Practice 1-6)
Perhaps no situation routinely faced by Realtors can be more frustrating, fraught with potential for misunderstanding and missed opportunity, and elusive of a formulaic solution than presenting and negotiating multiple purchase or lease offers and/or counter-offers on the same property. Consider the competing dynamics. Listing brokers are charged with helping sellers get the highest price and the most favorable terms for their property. Buyers’ brokers help their clients purchase property at the lowest price and on favorable terms. Balanced against the Code’s mandate of honesty is the imperative to refrain from making disclosures that may not, in the final analysis, be in a client’s interests. (Revised 11/01)
Will disclosing the existence of one offer make a second potential purchaser more likely to sign a full price purchase offer—or to pursue a different opportunity? Will telling several potential purchasers that each will be given a final opportunity to make their best offer result in spirited competition for the seller’s property—or in a table devoid of offers? What is fair? What is honest? What is to be done? Who decides? And why is there not a simple way to deal with these situations? As Realtors know, there are almost never simple answers to complex situations. And multiple offer presentations and negotiations are nothing if not complex. But, al-though there is not a single, standard approach to dealing with multiple offers, there are fundamental principles to guide Realtors. While these guidelines focus on negotiation of purchase offers, the following general principles are equally applicable to negotiation of lease agreements. (Revised 11/01)
Be aware of your duties to your client — seller or buyer — both as established in the Code of Ethics and in state law and regulations. (Revised 5/01)
The Code requires you to protect and promote your client’s interests. State law or regulations will likely also spell out duties you owe to your client. The Code requires that you be honest with all parties. State law or regulations will likely spell out duties you owe to other parties and to other real estate professionals. Those duties may vary from the general guidance offered here. Realtors need to be familiar with applicable laws and regulations. Be aware of your duties to other parties — both as established in the Code of Ethics and in state law and regulation. Remember that the decisions about how offers will be presented, how offers will be negotiated, whether counter-offers will be made and ultimately which offer, if any, will be accepted, are made by the seller — not by the listing broker. (Revised 5/01)
Remember that decisions about how counter-offers will be presented, how counter-offers will be negotiated, and whether a counter-offer will be accepted, are made by the buyer — not by the buyer’s broker. (Adopted 5/01)
When taking listings, explain to sellers that receiving multiple competing offers is a possibility. Explain the various ways they may be dealt with (e.g., acceptance of the “best” offer; informing all potential purchasers that other offers are on the table and inviting them to make their best offer; countering one offer while putting the others to the side; countering one offer while rejecting the other offers, etc.). Explain the pluses and minuses of each approach (patience may result in an even better offer; inviting each offeror to make their “best” offer may produce a better offer[s] than what is currently on the table—or may discourage offerors and result in their pursuing other properties). Explain that your advice is just that and that your past experience cannot guarantee what a particular buyer may do. Remember — and remind the seller — that the decisions are theirs to make — not yours, and that you are bound by their lawful and ethical instructions. When entering into buyer representation agreements, explain to buyers that you or your firm may represent more than one buyer-client, that more than one of your clients or your firm’s clients may be interested in purchasing the same property, and how offers and counter-offers will be negotiated if that happens. (Adopted 5/01)
Explain the pluses and minuses of various negotiating strategies (that a “low” initial offer may result in the buyer purchasing the desired property at less than the listed price — or in another, higher offer from another buyer being accepted; that a full price offer may result in the buyer purchasing the desired property while paying more than the seller might have taken for the property, etc.). (Adopted 5/01)
Explain to the buyer that sellers are not bound by the Code of Ethics. Sellers, in multiple offer situations, are not prohibited from “shopping” offers. Real estate brokers may, unless prohibited by law or regulation, “shop” offers. Therefore, Realtors assisting purchasers in formulating purchase offers should advise those purchasers it is possible that the existence, terms, and conditions of any offer they make may be disclosed to other purchasers by sellers or by sellers’ representatives except where such disclosure is prohibited by law or regulation. (Adopted 5/05)
Remember — and remind the buyer — that the decisions are theirs to make—not yours, and that you are bound by their lawful and ethical instructions. (Adopted 5/01)
If the possibility of multiple offers — and the various ways they might be dealt with — were not discussed with the seller when their property was listed and it becomes apparent that multiple offers may be (or have been) made, immediately explain the options and alternatives available to the sellers — and get direction from them. When representing sellers or buyers, be mindful of Standard of Practice 1-6’s charge to “. . . submit offers and counter-offers objectively and as quickly as possible.” (Revised 5/01)
With the seller’s approval “…divulge the existence of offers on the property” consistent with Standard of Practice 1-15. (Adopted 11/02)
While the Code of Ethics does not expressly mandate “fairness” (given its inherent subjectivity), remember that the Preamble has long noted that “. . . Realtor has come to connote competency, fairness, and high integrity. . . .” If a seller directs you to advise offerors about the existence of other purchase offers, fairness dictates that all offerors or their representatives be so informed. Article 3 calls on Realtors to “. . . cooperate with other brokers except when cooperation is not in the client’s best interest.” Implicit in cooperation is forthright sharing of information related to cooperative transactions and potential cooperative transactions. Much of the frustration that occurs in multiple offer situations results from cooperating brokers being unaware of the status of offers they have procured. Listing brokers should make reasonable efforts to keep cooperating brokers informed. Similarly, buyer brokers should make reasonable efforts to keep listing brokers informed about the status of counter-offers their seller-clients have made. (Revised 5/01)
Realize that in multiple offer situations only one offer will result in a sale and one (or more) potential purchasers will be disappointed that their offer was not accepted. While little can be done to assuage their disappointment, fair and honest treatment throughout the process; coupled with prompt, ongoing and open communication, will enhance the likelihood they will feel they were treated fairly and honestly. In this regard, “. . . Realtors can take no safer guide than that which has been handed down through the centuries, embodied in the Golden Rule, ‘Whatsoever ye would that others should do to you, do ye even so to them.’ ” (from the Preamble to the Code of Ethics). (Revised 5/05)
Trelora began as an outspoken anti-Realtor brokerage that also was against paying buyer’s agents a co-op commission. (The name “Trelora” was derived from a scrambling of the word “Realtor.”) However, Trelora has made an about-face in the last couple of years and is now both a Realtor brokerage and a brokerage that offers 2.5% to 2.8% co-op commissions on its listings.
When it started as a non-Realtor brokerage in 2010, its first 96 listings all advertised a co-op commission of $2.80, an apparent play on the common co-op of 2.80%. Perhaps they wanted buyer agents to misread the co-op on the MLS and only realize later that they had worked for free.
By April 2013, Trelora had adopted the practice of recommending to sellers a flat co-op of $3,000, although it wasn’t universal because many buyers felt their listings might not get shown if they were too miserly in their compensation offer. I myself was paid 3% on a listing during this time because the seller told me that he wanted buyer agents to show and sell it knowing they’d earn a commission equivalent to a million-dollar listing.
Also, during this time, one of my broker associates spoke to a Trelora agent who encouraged him to put into the listing contract that the buyer would pay 2.8% instead of $3,000, and that indeed worked for him, although I’ve been advised since then that inserting an additional provision related to broker compensation was inappropriate.
In mid-2019, Trelora created a separate Realtor firm that operated side-by-side with their original non-Realtor firm for about two years. That non-Realtor firm appears now to have been phased out. Meanwhile, the Realtor firm has listed over 500 homes and has closed 450 of them. Of its first 50 listings, 33 offered 2.8% co-ops, three offered 3% co-ops, and seven offered 2.5% co-ops. Only three of the 50 offered less than 2%.
The 50 most recent closings reflected the same shift I reported on last week: Only 13 offered 2.8%, 34 offered 2.5%, and none offered less than 2%.
My fellow Realtors will be less surprised by the change in co-op compensation than by Trelora becoming a Realtor brokerage, given its original animus toward Realtors.
I barely remember the one time that I charged 6% to list a home, but I think it was over a decade ago and it was for a condo priced under $100,000.
Agents who have been in this business longer than I have may recall when the Denver Board of Realtors dictated a 7% listing commission with 2.8% of that going to the cooperating (i.e., buyer’s) agent as a “co-op” commission.. If the listing agent sold the listing himself, he would keep the entire 7%.
Times have certainly changed. The Sherman Anti-Trust Act of 1890 wasn’t deemed to apply to the setting of real estate commissions until the 1980 Supreme Court decision in McLain v. Real Estate Board of New Orleans, Inc. It took until then for the Court to rule that the brokering of real estate transactions involved enough elements of interstate commerce for the local practice of real estate to be reason-ably subject to that federal law.
As a result of that decision, the Denver Board of Realtors abandoned the dictating of commissions. Commission rates have been declining ever since, although listing commissions still average in the mid-5% range, largely because few brokerages or their agents have been willing to offer less that 2.8% co-op commissions lest their listings not get shown and sold by other agents. But even that is changing now. With real estate prices skyrocketing, there is increasing free market pressure to reduce both the listing commission and the portion of that commission offered to cooperating brokers.
In real estate school it was drummed into us that there is no such thing as a “standard” commission, that listing commissions are negotiable. We were also told that we should never discuss with fellow agents what we charge. Even to suggest that there is a standard commission or discuss commissions with others would be a violation of anti-trust laws.
Years ago, I experimented with offering 2.5% co-op commissions on my listings and I found that they got fewer showings and no offers, so I went back to offering 2.8%. Nowadays, however, because of higher home prices, lower co-op commissions are less of an impediment. I am back to offering a 2.5% co-op commission on higher-priced listings so I can charge a lower listing commission, and they’re still selling immediately.
I did some research to quantify the effect of the lower co-op commissions and found that 30% of the homes which sold in one day were offering between 2% and 2.6% co-op commission, with a 2.5% co-op being the most common. The homes that took 10 to 12 days to sell had twice as many showing lower co-ops, so lower co-op offers appear to have slowed sales, but the homes still sold relatively quickly.
It seems only right to me that higher priced homes should carry lower listing commissions and lower co-op offers, so I did some research on that, too. The MLS does not reveal listing commissions, but I was able to research co-op commissions which, to a certain extent, should reflect the listing commission, since agents are reluctant to give away more than half their listing commission to buyers’ agents.
What I found surprised me. Of homes that closed in the last 30 days, I found that 46% of the closings under $450,000 offered less than 2.8% co-ops. Only 26% of home which sold between $1 million and $1.3 million offered less than 2.8% co-op. And most shocking of all, only 16% of the homes that sold for $3.4 million or more offered less than 2.8% co-op.
There’s currently a listing in the foothills above Golden for $25.7 million that is offering 2.8% co-op commission. The lucky broker who sells that listing will earn a commission of $770,000 for writing that contract. And, of course, the listing agent is getting about that much for putting it in the MLS. That seems excessive to me.
That brings up the topic of whether real estate agents generally are over compensated — a belief that generates considerable antagonism toward my colleagues and myself.
Here, too, the myth of the 6% commission is at play. Since the commission is typically lower than 6% and is split between the agents on each side of the transaction, a broker typically earns between 2.5% and 2.8% on each closing, not 6%. In most brokerages, the agent only gets a percentage of that commission and what’s earned is pre-expense income — referred to as Gross Commission Income or GCI.
The National Association of Realtors has reported that its members had a median GCI of $43,330 in 2020. Deduct expenses such as MLS fees, E&O insurance, cell phone and car expenses, computers and their software, plus licensing fees, and we are not a highly compensated industry on average. Keep in mind that only half of licensed brokers are Realtors, because NAR dues cost about $500 per year. Licensees who won’t pay the dues to be Realtors likely earn even less.
The 80/20 rule applies in real estate as it does everywhere. Twenty percent of agents do 80% of the business and earn 80% of the commissions. Golden Real Estate’s brokers are all in that 20%. We attribute our success to the fact that we give back, spending far more money, for example, on publishing this educational column than we do on all other expenses related to the real estate business.
I believe we earn our commissions and offer a great “value proposition.” See our list of services below. I hope you agree.
2021 has been a difficult year for everyone, but it has also been a year of growth for Golden Real Estate and for me personally. Fortunately, Rita and I have escaped infection by Covid-19. We are all fully vaccinated, and Rita and I plus a couple broker associates have received our booster shots.
We’ll be closing out 2021 with over $50 million in closed sales volume, compared to less than $32 million in 2020.
So we have a lot to be thankful for at Golden Real Estate, most especially the patronage of buyers and sellers who chose us to serve their real estate needs. I know for a fact that many of this year’s clients chose us not only because of the real estate reputation we have built through this weekly column but also because of the political stands I have taken regarding our former president and his followers. We gained far more clients than we lost because of my political writing.
And we are not alone politically. While fellow agents and brokerages have not spoken out as we have for fear of losing clients, the National Association of Realtors (NAR) has taken some courageous stands demonstrating alignment with our own values. For example, last fall the incoming president of NAR apologized for the past policies of the association which reinforced systemic racism, such as redlining and steering buyers to minority areas instead of showing them all listings they were financially qualified to buy. I’m grateful for the attention paid by NAR to social justice issues, but also for its effort, albeit unsuccessful so far, to eliminate the practice of off-MLS (“pocket”) listings.
I’m also grateful for the progress being made by REcolorado, Denver’s MLS. I have seen this progress from the inside as a member of the Rules & Regulations Committee as well as from being a user of REcolorado’s services. I appreciate REcolorado for adopting some of my suggestions, such as creating a field for closing notes.
At the top of my gratitude list is the fact that we were able to rent a storefront in downtown Golden. In early December, Golden Real Estate will be moving to 1214 Washington Avenue, the former location of Laurel Property Services. We look forward to benefiting from the pedestrian traffic of that prime location. We have ordered a WindoVision unit from TouchPoint Systems to capitalize on that traffic. Below is an artist’s rendering of it installed in our storefront. It allows passersby to search the MLS live using a through-the-window touch screen.
What’s really exciting about our move to downtown Golden is what it allows us to do with our current building on South Golden Road. As you know by now, we are a showplace of “net zero energy,” so I am partnering with broker associate Ty Scrable, who is super-committed and knowledgeable about sustainability, to create a new business we are calling The Net Zero Store. Our goal is to bring under one roof and into one showroom the various products and services that allow homeowners and businesses to “go net zero.”
Ty and I will be presenting our plans for this new venture at the Nov. 30th, 7pm, meeting of the Colorado Renewable Energy Society at the Jefferson Unitarian Church, 14350 W. 32nd Ave. Here’s a link if you’d like to attend.
In November 2019 the National Association of Realtors (NAR) created its Clear Cooperation Policy (CCP) designed to end the practice of “pocket listings.” A pocket listing is one which an agent keeps in his or her “pocket,” hoping to sell it himself instead of giving other agents the opportunity to sell it. The incentive is financial. Roughly half the listing commission goes to the agent who sells a listing. If an agent sells the listing himself, he/she gets to keep the entire commission.
The term “clear cooperation” is a reference to the purpose of the MLS, which is “cooperation and compensation.” Every MLS member agrees to cooperate with other MLS members, allowing them to sell their listing. And every listing specifies the compensation which the buyer’s agent will receive — typically 2.5 to 2.8 percent in our market.
You can read the three previous articles I’ve written about this policy at www.JimSmithColumns.com. Those articles (in Nov. 2019, Feb. 2021, and Aug. 2021) document the creation of the CCP and its subsequent implementation by REcolorado, our MLS. The deadline set by NAR to do so was May 1, 2020.
My August 12, 2021, column described how our MLS is fining agents $1,500 for a first offense when they fail to put a listing on the MLS within one business day of promoting it outside their own office in any way — online, in print or via a sign in the ground.
One would think that with such a big penalty the number of homes selling with zero days on the MLS would have declined, but in fact they have increased. I didn’t realize that until I read a Nov. 3rd article from Inman.com which quoted a study by Broker Resource Network (BRN). The study pulled data from 24 multiple listing services comparing the number of homes sold with zero days on MLS during the 12 months before and after the May 1, 2020, implementation date.
“In every market reviewed across the United States, brokerages recognized double and triple digit increases in Zero Days On Market listings across firms of all sizes and business models,” the report said. These were figures for big brokerages, not the full MLS.
So I checked REcolorado statistics to see what our full-MLS statistics are for homes sold with zero days on the MLS. I found that there were 2,225 such closings reported in the 12 months before May 1, 2020, and 2,769 reported in the 12 months after May 1, 2020 — a 24.4% increase.
To discover the longer trendline, I looked at several half-year periods going back to 2018. In the last 180 days (as of this past Sunday), there were 1,677 closings of resale residential listings recorded on REcolorado with zero days on MLS before going under contract.
During the same 180 days of 2020, there were 1,295 such closings, making this year a 29.5% increase over last year. The number in 2019 was even lower — 1,077. In 2018 it was not much different — 1,104.
What could account for this counter-intuitive increase?
One explanation might be the explosion of the seller’s market during the pandemic, which really took off simultaneously with the implementation of the Clear Cooperation Policy (and the pandemic surge).
One way to assess the seller’s market is to measure how many homes went under contract after 4 days on the MLS during those 12 months before and after May 1, 2020, and the median ratio of sold price to listing price for those listings.
During the 12 months before the implementation of the CCP, there were 4,563 closings of listings which went under contract in 4 days, and the median ratio of sold price to listing price was 1.0019. During the 8 months after May 1, 2020, there were 4,896 such closings, and the median ratio was 1.01299. Another 2,840 such closings took place during the remaining 4 months of the 12-month period after May 1, 2020, and the median ratio for them was 1.05157. Clearly, the seller’s market was accelerating. It makes sense that more sellers might receive offers they “can’t refuse,” and that listing agents might encourage them to accept those offers.
There was an important loophole created when the CCP was implemented by REcolorado and perhaps by those 24 other MLSs. That loophole is called the “office exclusive,” which allows any brokerage to promote an off-MLS listing within the brokerage, so long as there is no advertising of any kind on social media or in print and no sign in the yard — the definition of a pocket listing.
This policy greatly favored large brokerages which could have hundreds of agents in a dozen or more offices, to promote new listings internally with the additional incentive of keeping the full commission of each transaction within the brokerage.
If this loophole were to be closed, there would probably be far fewer closings with zero days in the MLS — and sellers might get more money for their homes by having them exposed to more competing buyers.
As I mentioned above, a listing agent profits from keeping a listing off the MLS, because it increases the chances of selling the listing himself and thereby greatly increasing his/her commission. Of the 100 homes on REcolorado which sold for $1.25 million or more in the last 180 days with zero days on the MLS, 25% of them were double ended (see list below), and only 9 of those 25 listings reduced the commission paid by the seller because of their listing agent’s windfall. (The agents at Golden Real Estate always discount our commission when we double-end a transaction.)
By contrast, of the 100 highest priced homes ($1,575,000 and over) which sold after 4 days on the market, only 2% were double-ended. Whether or not you call it “greed,” the agents who kept their homes off the MLS greatly profited from it — and the sellers paid the price by not exposing their homes to all potential buyers.
Another recent article from Inman reminds us that Fair Housing was one of the reasons the Clear Cooperation Policy was introduced. A blog post on REcolorado also makes this point. The reasoning is that if a home is sold privately without being exposed to all buyers on an MLS, then it is more likely to be sold within the same demographic. Thus, pocket listings are inherently discriminatory against minority groups, whether they be racial or, for example, LGBTQ.
I’m sure that these articles and the studies behind them, including my own analysis of REcolorado statistics herein, will lead to some discussion locally and nationally about how to tweak the Clear Cooperation Policy so it is more effective and less counter-productive, which it clearly has proven to be. I do not believe, however, that the Clear Cooperation Policy will be scrapped, because its stated intention is clearly good public policy.
Sellers: Insist that your home is put on the MLS so that all interested buyers have the opportunity to see it and participate in a bidding war that nets you more money.
Last November, the National Association of Realtors (NAR) board of directors voted into existence a “Clear Cooperation Policy” (see below). The rule required all MLSs in the country to implement the policy by May 1st of 2021. Although there were some technical delays, the rule is in full force now and our MLS, REcolorado, is enforcing it with substantial fines for violations. (I know because I’m on the Rules & Regulations Committee.) Many MLS members have already received fines starting at $1,500, with only one warning notice given.
The rule basically says that there can be no advertising of any kind for a listing without making the listing active on the MLS so that all members of the MLS have the opportunity to show and sell it. If a “for sale” sign is put on a listing or there is a social media ad for it, or any other kind of public promotion of the listing, the agent must put it on the MLS within one business day. Currently that means that if the sign or advertising appears in the morning, it must be on the MLS by 6:30 pm the same day. If it is promoted in the afternoon, it should be on the MLS the following morning.
A listing can be listed on the MLS as “Coming Soon,” but that means no showing by anyone including the listing agent. Once a showing takes place, it must be changed to “Active” immediately, making it available to other MLS members. Also, if it’s “Coming Soon” on the MLS, there must be a Coming Soon sign rider on the yard sign.
Most NAR rules only apply to NAR members (aka “Realtors”), but since NAR requires all MLSs to implement the rule, it does apply to the thousands of agents who do not belong to a Realtor brokerage.
The policy was intended to reduce the number of “pocket listings.” A pocket listing is one which an agent withholds from the MLS (i.e., keeps in his pocket) in hopes of selling it himself or herself and thereby not sharing the commission with another agent.
With such stringent enforcement of the rule — other MLS violations carry penalties as small as $25 — you’d think there would be a widespread shift away from agents selling their listings before they are shared on the MLS.
To see if that was the case, I did some analysis of my own, counting the number of closings entered on REcolorado showing zero days on the MLS. I fully expected to see a drop in the number of such closings.
The first day that a listing is on the MLS, it is shown as 0 days in the MLS. If it is changed to pending (or closed) the same day, one can assume that the listing was not active on the MLS long enough for other agents to set a showing and submit an offer.
Much to my surprise, the number of homes listed as closed with zero days on the MLS has only increased over the last 24 months, as shown by the chart below. In fact, the highest number of such closings has occurred since the rule went into effect.
So what gives? This harsh penalty does not appear to be having the desired effect, but maybe some more publicity about it will create more awareness and more compliance. Agents can be suspended from membership in the MLS after enough violations, basically putting them out of business.
After three violations within the same brokerage, the brokerage itself starts getting penalized, with the fine starting at $5,000, so that should certainly increase the in-house training about the rule. I have made sure that my own broker associates are aware of the rule.
Homeowners can, of course, make their own private deals with a buyer and then call upon an agent to handle the paperwork, which is fine, since there’s no advertising or promotion of the listing by the agent.
Also, there’s a “brokerage exclusion” which allows an agent in a large brokerage to tell other agents within that brokerage about the listing, but that cannot include posting it on social media where other buyers could learn about it. These two work-arounds could explain many of the homes contributing to the chart’s high numbers.
Why Is It Called ‘Clear Cooperation Policy’?
The real estate industry is unlike any other industry I know. Through our many Multi-List Services or MLSs, we members agree to “cooperation and compensation.” In other words, each member agrees to share his/her listings with every other member, allowing them to sell that listing to a buyer, and to be compensated by the listing agent by an amount displayed on the MLS.
I like to compare our industry to the new car business. Imagine if you went to a Chevy dealer and described the kind of car you wanted, and the salesman said, “I think the Ford Explorer would be perfect for you.” The salesman takes you to the Ford dealer, gets the keys, and then joins you on a test drive. If you like it, the salesman writes up the contract and presents it to a Ford salesman, who then gives the Chevy salesman half his commission (which the Chevy salesman then splits with his dealership).
That’s how it works in real estate. The commission earned by a buyer’s agent (who is the selling agent) is called the co-op commission, short for cooperation.
The MLSs have rules requiring a member to put all their listings on the MLS, typically within 3 business days. NAR’s “Clear Cooperation Policy” tightens that rule to say that any agent who promotes a listing to prospective buyers in any way (including with a sign in the yard or a social media post) must put the listing on the MLS within one business day.
The NAR policy — now an MLS rule — was instigated by members upset that other members were withholding their listings from the MLS until they were sold, further frustrating both the agents and their buyers looking for homes to buy at a time of especially low inventory.